Restraint of trade - Friend or foe?

Government is in the process to review regulations for all entry-level posts in the public service, to allow new entrants without prior experience. File Image:IOL

In many cases, job seekers have landed their dream job only to be presented with a restraint of trade agreement as part of their condition of employment. The agreement is often signed under the false impression that it is not enforceable.

A restraint is specifically designed to protect the interests of the employer and this agreement is put in place to protect their customer relationships and intellectual property. The clause prohibits an employee from engaging with direct competitors or from competing with the business of the employer for a specific period and within a certain geographical area after the employment contract has been terminated.

It is important to note that this type of clause is regulated by the law of contract and not by the labour law and as such cannot be referred to the CCMA for assistance.

The courts have confirmed that when a person seeks to enforce a restraint they need only invoke the contract and prove a breach of its terms. The respondent would have to prove that the agreement is not enforceable due to it being unreasonable. Public policy is also considered, in other words, that a contract was entered and must be honoured by both parties.

There are four main principles that the courts use to determine if a restraint is reasonable:

Is there an interest that deserves protection after the termination of an employment contract?

If so, is this interest being prejudiced by the other party?

If prejudice does exist, does the interest weigh up qualitatively and quantitatively against the interest of that party so he/she should not be economically inactive and unproductive? In essence, the courts need to determine what would be worse, the employee not having a job at all or the employer’s protectable interest.

Is there any other aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint be maintained or rejected?

Proprietary interests fall into two categories, the first being confidential information or trade secrets which if disclosed to or used by a competitor, they can gain a competitive advantage.

This information must not be public knowledge and only known to a restricted number of people, and must be of economic value to the person who wants to protect it.

Second, that the employer needs to protect its trade connections, as the employee would have access to customers or suppliers and would be in a position to draw the trade connections to follow the employee to a new business.

A restraint is generally not enforceable when it is clear that an employee has not acquired any confidential information and had not received any training. Restraints are more often enforced for more senior types of positions which have access to sensitive company information and very often used within the sale environment.

Before signing a restraint of trade it is important to consider the terms of the contract, how long it will last, which geographical areas and business domains it covers, when and how it will be applied and most importantly how it will affect your ability to make a living should you decide to leave.

Mel Muller is a talent acquisition head hunter/recruitment manager at Kontak.